“Credit Conditions and Stock Return Predictability,” forthcoming at the Journal of Monetary Economics ( Sudheer Chava（佐治亚工学院），Michael F. Gallmeyer （弗吉尼亚大学） and Heungju Park （北京大学汇丰商学院）)

Abstract:     

We analyze U.S. stock return predictability using a measure of credit standards (Standards) derived from the Federal Reserve Board's Senior Loan Officer Opinion Survey on Bank Lending Practices. Standards is a strong predictor of stock returns at a business cycle frequency, especially in the post-1990 data period. Empirically, a tightening of Standards predicts lower future stock returns. Standards performs well both in-sample and out-of-sample and is robust to a host of consistency checks. Standards captures stock return predictability at a business cycle frequency and is driven primarily by the ability of Standards to predict cash flow news.

Number of Pages in PDF File: 53

Keywords: Stock predictability, credit supply, macroeconomics, survey data